ACCA Financial Management (F9) Certification Practice Exam

What is a primary characteristic of Treasury Bills (T-bills)?

1. Issued at face value with no discount

2. Short-term government securities returning face amount at maturity

3. Long-term debt instruments with fixed interest

4. Issued only by private corporations

The correct answer is: Short-term government securities returning face amount at maturity

Treasury Bills (T-bills) are short-term government securities that are issued by the government to finance its short-term funding needs. A primary characteristic of T-bills is that they have maturities that typically range from a few days up to one year. They are sold at a discount to their face value, meaning that the investor pays less than the nominal value but receives the full face amount upon maturity. This distinctive feature makes T-bills a low-risk investment, as the return on investment is guaranteed to be the difference between the purchase price and the amount received at maturity. They do not pay interest in the traditional sense; instead, the interest is effectively built into the discount. This characteristic of returning the full face amount at maturity confirms the selection, showcasing T-bills as a secure and liquid investment option for those looking for short-term placements.